Trevor's Budget for property owners

Property experts would be hard pressed to draw up a better budget for the homeowner than the one Trevor Manuel has just delivered. Last week I pointed out how the government collects taxes from its citizens with property owners being targeted through transfer duties, estate duty, stamp duties and Capital Gains Tax. On Wednesday The Honourable Minister of Finance, Trevor Manuel, substantially changed these taxes.

Estate Duty
Estate Duty is an indirect way in which landowners fork over substantial amounts to the taxman as a sizeable portion of the value of an estate is privately owned property. Manuel has raised the exemption rate from R1.5M to R2.5M.

Stamp Duty
Rental leases have in the past contributed towards the coffers via the stamp duties that need to be affixed to a lease. Manuel has raised this to a threshold of R500 before any duty needs to be paid.

Capital Gains Tax
I bemoaned the fact that inflation and escalating house prices would push most middle class homeowners into paying Capital Gains when they sold their homes. Manuel has raised the exemption rate to R1.5M from R1M on primary residences.

Transfer Duty
The biggest move on Wednesday was the more than 150% increase in the level of exemption from Transfer Duty for property owners. From now on only property over R500 000 will start attracting transfer duty. It will be at a rate of 5% up to R1 Million and then the 8% rate will be applied. On business and trust owned property the rate has been dropped from a flat 10% to a flat 8%.

Effects
Given the above the change in rates and exemptions is not that dramatic when calculated, e.g. the savings on a property value of R1 Million is a mere 3.5% of the value or R35 600. A property worth R500 000 would now be R20 600 cheaper or 4.1% of the value.

This R35 600 and R20 600 savings might not seem that substantial but it is very significant. This 'extra' amount that the homeowner has to pay up is usually not financed by the bank and therefore is money that the buyer has to fork out immediately on transfer and is effectively a deterrent to property buyers.

A consequence of this duty was to make new developments more attractive as the VAT payable in lieu of the Transfer Duty is payable by the developer and the purchaser has the ability to finance the full purchase price.

The change, therefore, is going to have an effect on the secondhand property market, making it easier for owners to sell and buy in the lower end of the market and making secondhand property more attractive. This stimulation at the lower end of the market is beneficial in two ways. The financial barrier has been lowered enabling more people to enter the market. Secondly this stimulation at the lower end of the market will trickle up the value chain.

So as commentators bemoan the budget as not having given enough back to business and the people, property owners should quietly be jumping for joy.

Thanks Trevor.

Click here for a full transcript of the budget speech.

Article by: Dave Welmans - www.thepropertygame.co.za